Market categories: demand, supply, price
WHAT IS ECONOMICS ABOUT
What is economics? . Economics was defined as the study of mankind in the everyday business life.
What does economics study? It is the study of human efforts to satisfy what seems like unlimited and competing wants through the careful use of relatively scarce resources
What are the key terms of economics?key terms: needs, wants, and demands.
What does economics deal with? economics deals with production, distribution, exchange and consumption.
What are economic products? economic products — goods and services that are useful, relatively scarce and transferable to others.
What is the difference between goods and services? The difference between goods and services is that the services are something that cannot be touched or felt like goods.
What are consumer goods intended for? Consumer goods are intended for final use by individuals to satisfy their wants and needs.
What are capital goods? Manufactured goods used to produce other goods and services are calledcapital goods
What does the term “value” mean in economics? In economics the term value means something having a worth that can be expressed in dollars and cents.
What does the term “wealth” mean in economics? Another economic concept is wealth — the sum of those economic products that are tangible, scarce, useful and transferable from one person to another.
What is counted as wealth? Most economic goods are counted as wealth, but services are not.
Why does utility of consumer goods vary from one person to another? One person may, for example, get a great deal ofenjoyment from a home computer, another may get very little. In the end, for something to have value, it must be scarce and have utility.
What is country’s total worth? A country’s total worth, then is the stockpile of useful scarce, tangible things in existence at a given time.
FACTORS OF PRODUCTION
What is the reason people cannot satisfy all their wants and needs? The reason people cannot satisfy all their wants and needs is the scarcity of productive resources.
What are the factors of production?factors of production are called land, labour, capital, and organization or entrepreneurship
What does the term “land” mean? land means the gifts of nature or natural resources not created by human efforts.
What do economists think of land as a factor of production? It includes deserts, fertile fields, forests, mineral deposits, rainfall, sunshine and the climate necessary to grow crops.
What is labor in economic theory? labour — people with all their efforts and abilities.
What is the national labor force?labour force individuals,16 years of age or older, working or looking for work.
What does the size of labor depend on? the size of this force is related to total population the number of people available for production activities will grow as the population grows.
What categories does labor fall into? These categories are unskilled, semiskilled, skilled and professional or managerial.
What kind of work do unskilled workers perform? Most of these people work chiefly with their hands at such jobs as digging ditches, picking fruit, etc.
What category do workers with mechanical ability fall into? Workers who do not have the training to operate machines and equipment fall into the category of unskilled labour.
What kind of work are skilled workers able to do? Workers who are able to operate complex equipment and who can do their tasks with little supervisions fall into the category of skilled labour. Examples are carpenters, typists, toolmakers.
What is professional labor? . Workers with high level skills such as doctors, lawyers and executives of large companies fall into the category of professional labour.
What is a wage rate? wage rate — a standard amount of pay given for work performed.
What are the factors affecting the wage rate? the higher the level of skills, or grade of labour, the higher the average yearly wage rate
What is the third factor of production? The third factor of production is capital— the tools, equipment and factories used in production of goods and services.
What is the difference between physical and financial capital?financial capital, the money used to buy the tools and equipment used in production
When does production take place? When the three inputs— land, labour and capital — are present, production or the process of creating goods and services, can take place.
What is entrepreneurship? Entrepreneurship, the managerial or organizational skills needed by most firms to produce goods and services, is the fourth factor of production.
What role do the entrepreneurs play? The entrepreneur brings together the other three factors of production — land, labour and capital.
ECONOMIC SYSTEMS
What do all societies have in common? They have an economic system or an organized way of providing for the wants and needs of their people.
What does the survival of any society depend on? The survival of any society depends on its ability to provide food, clothing and shelter for its people.
What is an economic system?economic systemthe approach a country uses to deal with scarcity and аchieve its economic goals.
What are all societies faced with? Since these societies are also faced with scarcity decisions concerning What, How and for Whom to produce must be made.
What determines the type of any economic system? The way in which these decisions are made will determine the type of economic system they have.
What are the major kinds of economic systems? . There are three major kinds of economic systems: traditional, command and market.
How are the main economic questions decided in a society with a traditional economy? They know what goods and services will be produced, how to produce them, and how such goods and services will be distributed.
What are the main advantage and disadvantage of a traditional economy? The main advantage of the traditional economy is that everyone has a role in it. This helps keep economic life stable and community life continuous. The main disadvantage of the traditional economy is that it tends to discourage new ideas and even punishes people for breaking rules or doing things differently.
What is a command economy? a command economy — one where a central authority makes most of the What, How and for Whom decisions.
What is the major advantage of a command economy? The major advantage of a command system is that it can change direction drastically in a relatively short time.
What disadvantages does the command economy have? The major disadvantage of the command system is that it does not always meet the wants and needs of individuals.
What is a market economy? market is an arrangement that allows buyers and sellers to come together to conduct transactions.
How are the basic economic questions answered in a market economy? In a market economy, the questions of What, How and for Whom to produce are made by individuals and firms acting in their own best interests.
What is the main incentive of a market economy? profitis the main incentive of a market economy
What advantages does a market economy have? a market economy is flexible and can adjust to change over time. The second major advantage of the market economy is the freedom that exists for everyone involved. The third advantage of the market economy is the lack of significant government intervention.
MARKET CATEGORIES: DEMAND, SUPPLY, PRICE
What is demand? demand as a consumer’s desire or want, together with his willingness to pay for what he wants.
What does the law of demand state? It says that the demand for an economic product varies inverselywith its price.
How do prices affect the quantities demanded? if prices are high the quantities demanded will be low. If prices are low the quantities demanded will be high.
What is demand elasticity?Elasticity of demand is a measure of the change in the quantity of
a good, in response to demand.
When is demand elastic? demand elastic is when demand for the product varies with the price of the product
When is demand inelastic? Demand is inelastic when a good is regarded as a basic necessity, but particularly elastic for non-essential commodities.
What factors is demand influenced by? demand is influenced by price,the incomes of the demanders and the prices of substitutes.
What is supply? supply means the quantity of a product supplied at the price prevailed at the time.
What does the law of supply state? The law of supply states that the quantity of an economic product offered for sale varies directly with its price.
How much of a product will suppliers offer for sale at different prices? If prices are high suppliers will offer greater quantities for sale. If prices are low, they will offer smaller quantities for sale.
What factors is supply determined by? supply is determined by price, the cost of production and the period of time allowed to supply to adjust to a change in prices.
What categories of costs is it important for a business to analyze?Fixed cost, Variable cost, Total cost, Marginal cost
What role do prices play in a market economy? Prices play an important role in all economic markets
What two important economic functions do prices perform? Prices perform two important economic functions: they ration scarce resources, and they motivate production
What characteristics do prices have in a market economy? Neutral, flexible
Why do buyers and sellers have the opposite intentions and hopes? . The buyers come to the market larger to pay low prices. The sellers come to the market hoping for high prices.
When does the adjustment process take place? adjustment process must take place when the two sides come together. This process almost always leads to market equilibrium
What is market equilibrium? market equilibrium — a situation where prices are relatively stable and there is neither a surplus nor a shortage in the market.
What messages do price increases and decreases send to producers of goods and services? In a market economy prices act as signals. A high price, for example, is a signal for producers to produce more and for buyers to buy less. A low price is a signal for producers to produce less and for buyers to buy more.